Published By Janet Gershen-Siegel at March 19th, 2018
Credit and business finance decoded? We can help you with both as you start a new business or work on a preexisting one. Your company can grow faster with business credit!
Developing small business credit means that your firm attains opportunities you never felt you would. You can get brand new equipment, bid on real estate, and deal with the company payroll. And you can do so even when times are a bit lean.
This is particularly helpful in holiday businesses, where you can go for calendar months with just negligible sales.
Because of this, you ought to tackle developing your business credit. Boost and maintain your scores and you will have these possibilities. Do not, and either you do not get these opportunities, or they will cost you a lot more. And no business owner wants that. You have to recognize what affects your small business credit before you can make it better.
This is in essence how long your company has been using company credit. Certainly newer companies will have very short credit histories. Though there is not a lot you can specifically do about that, do not panic. Credit reporting bureaus will also inspect your personal credit score and your own record of payments. If your personal credit is excellent, and in particular if you have a relatively extensive credit history, then your consumer credit can come to the rescue of your company. That is, you did not just get your first credit card a short time ago.
Obviously, the opposite is also right. So, if your consumer credit history is poor, then it will have an effect on your company credit scores until your small business and consumer credit can be split.
Overdue repayments will influence your company credit score for a good seven years. Make sure to pay your company (and personal) debts off, as rapidly as possible and as completely as possible. So, then you can make a very real difference when it concerns your credit scores. See to it to pay on schedule and you will reap the benefits of promptness.
Are you having a bad business year? Then it could end up on your personal credit score. And in the event your small business has not been in existence for too long, guess what happens? It will directly affect your company credit.
Having said that, you can unlink them both by taking steps to do so. As an example, if you get credit cards only for your business. Or you can open up business checking accounts and various other bank accounts (or perhaps get a business loan). So, then the credit reporting bureaus will start to address your consumer and company credit separately.
Also, make sure to incorporate, or at the very least file a DBA (doing business as) status. You can also pay for your company’s bills with your small business credit card or checking account. And make sure it is the business’s full name on the bill and not yours.
Credit utilization rate just shows the amount of cash you have on credit. So, it is then divided by your total available credit. Lenders generally speaking do not wish to see this go above 30%. Hence, for each $100 in credit, do not borrow on more than $30 of that.
If this percent is increasing, you’ll have to spend down. And pay off your financial debts ahead of borrowing more.
Just the same as each and every company around, credit reporting agencies just like Equifax and Experian are only as good as their information. If your company’s name is similar to another’s, or your name is a lot like another business owner’s, there can possibly be some mistakes.
So, monitor those reports, and your business report at Dun & Bradstreet, PAYDEX. Remain on top of these reports and question charges with documentation and clear communications. Do not just let them stay incorrect! You can fix this!
And while you’re at, it you should also be overseeing the credit reporting bureau which only handles personal and not company credit. And that is TransUnion. If you do not know the way to pull a credit report, do not stress. It is easy. Just Google to find the links to the CRAs.
Company credit is credit in a business’s name. It doesn’t attach to an owner’s personal credit, not even if the owner is a sole proprietor and the sole employee of the small business.
Consequently, a business owner’s business and consumer credit scores can be very different.
Due to the fact that business credit is separate from personal, it helps to secure a small business owner’s personal assets, in case of court action or business bankruptcy.
Also, with two distinct credit scores, an entrepreneur can get two separate cards from the same vendor. This effectively doubles buying power.
Another advantage is that even startup businesses can do this. Going to a bank for a business loan can be a recipe for disappointment. But building company credit, when done correctly, is a plan for success.
Consumer credit scores are dependent on payments but also other factors like credit usage percentages.
But for small business credit, the scores really merely hinge on whether a company pays its debts promptly.
Learn more here and get started toward establishing company credit.
Building business credit is a process, and it does not happen without effort. A small business will need to proactively work to establish company credit.
That being said, it can be done readily and quickly, and it is much more rapid than establishing personal credit scores.
Vendors are a big aspect of this process.
Undertaking the steps out of order will result in repetitive denials. Nobody can start at the top with business credit. For example, you can’t start with store or cash credit from your bank. If you do you’ll get a rejection 100% of the time.
A company needs to be reliable to credit issuers and vendors.
Hence, a business will need a professional-looking web site and email address. And it needs to have website hosting bought from a vendor like GoDaddy.
And, company phone and fax numbers should have a listing on 411.com.
Likewise, the business phone number should be toll-free (800 exchange or the like).
A company will also need a bank account devoted solely to it, and it must have all of the licenses necessary for running.
These licenses all have to be in the perfect, accurate name of the business. And they need to have the same company address and phone numbers.
So, note, that this means not just state licenses, but potentially also city licenses.
Learn more here and get started toward building small business credit.
Visit the Internal Revenue Service web site and obtain an EIN for the business. They’re totally free. Pick a business entity like corporation, LLC, etc.
A small business can start off as a sole proprietor. But they will most likely want to change to a sort of corporation or partnership.
This is in order to minimize risk. And it will optimize tax benefits.
A business entity will matter when it involves taxes and liability in the event of litigation. A sole proprietorship means the owner is it when it comes to liability and taxes. No one else is responsible.
If you run a company as a sole proprietor, then at least be sure to file for a DBA. This is ‘doing business as’ status.
If you do not, then your personal name is the same as the company name. Therefore, you can end up being personally responsible for all business financial obligations.
And also, per the IRS, by having this structure there is a 1 in 7 possibility of an IRS audit. There is a 1 in 50 probability for corporations! Prevent confusion and noticeably lower the odds of an IRS audit at the same time.
Start at the D&B web site and obtain a free D-U-N-S number. A D-U-N-S number is how D&B gets a small business in their system, to generate a PAYDEX score. If there is no D-U-N-S number, then there is no record and no PAYDEX score.
Once in D&B’s system, search Equifax and Experian’s websites for the small business. You can do this at www.creditsuite.com/reports. If there is a record with them, check it for accuracy and completeness. If there are no records with them, go to the next step in the process.
In this way, Experian and Equifax will have activity to report on.
First you should establish trade lines that report. This is also called the vendor credit tier. Then you’ll have an established credit profile, and you’ll get a business credit score.
And with an established business credit profile and score you can begin obtaining retail store and cash credit.
These types of accounts often tend to be for the things bought all the time, like coffee, shipping boxes, outdoor work wear, ink and toner, and office furniture.
But to start with, what is trade credit? These trade lines are credit issuers who will give you initial credit when you have none now. Terms are normally Net 30, instead of revolving.
So, if you get approval for $1,000 in vendor credit and use all of it, you must pay that money back in a set term, such as within 30 days on a Net 30 account.
Learn more here and get started toward establishing business credit.
Net 30 accounts need to be paid in full within 30 days. 60 accounts have to be paid completely within 60 days. Unlike with revolving accounts, you have a set time when you must pay back what you borrowed or the credit you made use of.
To kick off your business credit profile properly, you ought to get approval for vendor accounts that report to the business credit reporting agencies. As soon as that’s done, you can then use the credit.
Then pay back what you used, and the account is on report to Dun & Bradstreet, Experian, or Equifax.
Not every vendor can help in the same way true starter credit can. These are vendors that will grant an approval with nominal effort. You also want them to be reporting to one or more of the big three CRAs: Dun & Bradstreet, Equifax, and Experian.
You want 5 to 8 of these to move onto the next step, which is the retail credit tier. But you may need to apply more than one time to these vendors, and you may have to buy some things you don’t really need. So, this is to verify you are trustworthy and will pay punctually.
Consider giving unwanted items to charity.
Uline Shipping Supplies is a true starter vendor. You can find them online at www.uline.com. They sell shipping, packing, and industrial supplies, and they report to D&B.
You need to have a D-U-N-S number. They will ask for 2 references and a bank reference. The initial few orders might need to be paid in advance to initially get approval for Net 30 terms. Also, you may need to purchase some things you do not need.
Quill is another true starter vendor. You can find them online at www.quill.com. They sell office, packaging, and cleaning supplies, and they report to D&B and Experian.
Since Quill reports to two separate credit reporting agencies, you get two credit experiences with them. Place an initial order first unless the D&B score is developed.
In most cases they will put you on a 90-day prepayment schedule. If you order items each month for 3 months, they will often approve you for a Net 30 Account.
Grainger Industrial Supply is likewise a true starter vendor. You can find them online at www.grainger.com. They sell safety equipment, plumbing supplies, and more, and they report to D&B. You will need a business license, EIN, and a D-U-N-S number.
For under a $1000 credit limit they will approve virtually anyone with a business license.
Non-Reporting Trade Accounts can also be helpful. While you do want trade accounts to report to at the very least one of the CRAs, a trade account which does not report can also be of some worth.
You can always ask non-reporting accounts for trade references. And also, credit accounts of any sort will help you to better even out business expenditures, consequently making financial planning simpler. These are companies like PayPal Credit, T-Mobile, and Best Buy.
Once there are 5 to 8 or more vendor trade accounts reporting to at least one of the CRAs, then progress to the retail credit tier. These are businesses such as Office Depot and Staples. These companies are likelier to have supplies you need.
Use the small business’s EIN on these credit applications.
One example is Lowe’s. They report to D&B, Equifax and Business Experian. They need to see a D-U-N-S and a PAYDEX score of 78 or better.
Are there 8 to 10 accounts reporting? Then progress to the fleet credit tier. These are businesses such as BP and Conoco. Use this credit to buy, repair, and take care of vehicles. Make sure to apply using the business’s EIN.
One such example is Shell. They report to D&B and Business Experian. They want to see a PAYDEX Score of 78 or better and a 411 small business telephone listing.
Shell may claim they want a specific amount of time in business or revenue. But if you already have sufficient vendor accounts, that won’t be necessary. And you can still get approval.
Learn more here and get started toward growing business credit.
Have you been responsibly handling the credit you’ve gotten up to this point? Then move onto the cash credit tier. These are service providers such as Visa and MasterCard. Keep your SSN off these applications; use your EIN instead.
One such example is the Fuelman MasterCard. They report to D&B and Equifax Business. They need to see a PAYDEX Score of 78 or higher. And they also want you to have 10 trade lines reporting on your D&B report.
Plus, they want to see a $10,000 high credit limit reporting on your D&B report (other account reporting).
Additionally, they want you to have an established small business.
These are businesses like Walmart and Dell, and also Home Depot, BP, and Racetrac. These are commonly MasterCard credit cards. If you have 14 trade accounts reporting, then these are attainable.
Know what is happening with your credit. Make sure it is being reported and address any mistakes ASAP. Get in the practice of taking a look at credit reports and digging into the particulars, and not just the scores.
We can help you monitor business credit at Experian and D&B for only $24/month. See: www.creditsuite.com/business-credit-monitoring.
At D&B you can monitor at: www.dandb.com/credit-builder. At Experian, you can monitor your account at: www.smartbusinessreports.com/Landing/1217/. And at Equifax, you can monitor your account at: www.equifax.com/business/business-credit-monitor-small-business. Experian and Equifax cost about $19.99; D&B ranges from $49.99 to $99.99.
Update the information if there are inaccuracies or the relevant information is incomplete. At D&B, you can do this at: https://iupdate.dnb.com/iUpdate/viewiUpdateHome.htm. For Experian, go here: www.experian.com/small-business/business-credit-information.jsp. And for Equifax, go here: www.equifax.com/business/small-business.
So, what’s all this monitoring for? It’s to contest any mistakes in your records. Errors in your credit report(s) can be corrected. But the CRAs normally want you to dispute in a particular way.
Get your small business’s PAYDEX report at: www.dnb.com/about-us/our-data.html. Get your company’s Experian report at: www.businesscreditfacts.com/pdp.aspx?pg=SearchForm. And get your Equifax business credit report at: www.equifax.com/business/credit-information.
Disputing credit report mistakes usually means you send a paper letter with copies of any proofs of payment with it. These are documents like receipts and cancelled checks. Never mail the originals. Always mail copies and keep the originals.
Fixing credit report errors also means you precisely itemize any charges you contest. Make your dispute letter as clear as possible. Be specific about the concerns with your report. Use certified mail so that you will have proof that you sent in your dispute.
Dispute your or your company’s Equifax report by following the instructions here: www.equifax.com/small-business-faqs/#Dispute-FAQs.
You can dispute errors on your or your company’s Experian report by following the instructions here: www.experian.com/small-business/business-credit-information.jsp.
And D&B’s PAYDEX Customer Service phone number is here: www.dandb.com/glossary/paydex.
Always use credit sensibly! Don’t borrow more than what you can pay off. Keep an eye on balances and deadlines for payments. Paying on time and fully will do more to increase business credit scores than virtually anything else.
Growing company credit pays. Excellent business credit scores help a company get loans. Your lender knows the small business can pay its debts. They understand the company is bona fide.
The company’s EIN attaches to high scores and credit issuers won’t feel the need to ask for a personal guarantee.
Business credit is an asset which can help your small business for years to come.
Once you learn what impacts your business credit scores, you are that much closer to building enhanced business credit. Learn more here and get started in understanding credit and business finance decoded.